After deficient rainfalls in 2002, which resulted into one of the severest droughts in the recent past, 2003 monsoon brought back cheers to the farming community and the broader economy in general. At the end of the monsoon season, 33 out of the 36 met subdivisions had normal to excess rainfall and 75% of meteorogical districts received normal/excess rainfall. As a result, food grains production was higher by 21%. In value terms, agriculture and allied sector grew at an impressive 9%, one of the highest growths in recent times and only marginally lower than the previous high of 10% achieved in FY97.

Key positives:

Favorable monsoons helped in attaining a healthy 21% increase in food grain production. While production of oilseeds and cotton improved significantly, production of sugar experienced a fall. Total food grain production stood at 211 m tonnes in FY04 as against 174 m tonnes in FY03.

India has maintained leadership in the production of many commodities like mango, banana, coconut, arecanut, cashew, ginger, turmeric and black pepper.

A total of 41 m Kisan Credit Cards were issued and cumulative credits amounting to around Rs 1 trillion were sanctioned up to March 2004.

Public investments in agriculture attained a five-year high in FY03. Gross capital formation touched Rs 187 bn, highest ever in a decade.

Agriculture exports increased from US$ 6 bn in FY02 to US$ 7 bn in FY04 (April-Feb'04). However, as a percentage of total merchandise exports, the share of agri exports declined from 13% in FY03 to 12% in FY04 (Apri-Feb'04).

New initiatives taken:

Flow of institutional credit to the farming community to be enhanced by 30% to about Rs 1 trillion in FY05.

Total credit flow to agriculture during the tenth plan is projected to be Rs 7.4 trillion, almost three times the ninth plan achievement. Although there was a substantial increase in the agriculture credit in the first two years of the Tenth plan, the increase is not commensurate with the plan projection.

Setting up of Agri-export zones to enhance international market access and improve infrastructure facilities and ensure better flow of credit. Also, extending financial assistance for improved packaging, strengthening of quality control mechanism and modernization of processing units as envisaged by the Exim policy 2002-07.

A separate fund for development, modernization and rehabilitation of the tea plantation sector was created by abolition of the excise duty of Rs 1/kg on tea and its replacement by an additional excise duty of Rs 1/kg by way of surcharge. The fund would be used for revival, rehabilitation package for closed tea gardens, encouraging production of orthodox tea for exports, assistance to R&D and generic promotion of tea in India.

Outlay on the Horitculture (fruits, vegetables, spices) sector enhanced from Rs 15 bn in ninth plan to Rs 21 bn in the tenth plan. Also, additional cold storage facilities for 3 m tonnes were created under the cold storage scheme of the National Horticulture Board (NHB).

To encourage export of seeds, the procedures for seed exports have been simplified. Seeds of privately developed varieties/hybrids allowed to be exported freely subject to the provision of EXIM policy. Imports of seeds and planting materials are also allowed subject to EXIM policy and new policy on seed development.

A New Pricing Scheme (NPS) for fertilisers came into effect from April 1, 2003. The NPS is being implemented in stages. Stage -1 coincided with the fiscal year 2003-04 and stage II covers the two years of FY05 and FY06. In respect of complex fertilisers, a more rational pricing formula has been brought into implementation.

Outlook

While robust growth in both quantity as well as value terms in FY04 is encouraging, some basic issues and fundamental problems have to be addressed if the sector has to be put on a higher growth trajectory.

A clear bias in favor of food crops such as rice and wheat in the form of minimum support prices has led to skewed cropping pattern in the country. This has limited the growth potential of cash crops, a potential source of higher revenues for the farmers. There is a need for the government to promote policies that would ensure sufficient crop diversification.

Despite impacting almost 70% of the country's population, agriculture sector has suffered from lack of adequate investments. As can be seen from the chart below, investments in agriculture as a percentage of GDP have remained in the 1%-2% range over the last decade or so. This apathy has led to shortfall in certain basic infrastructure such as roads, irrigation and refrigerated transportation. It is therefore necessary to improve these facilities and develop efficient marketing and export networks to optimize the production and export potentialities in respect of agricultural products.

Close to 70% of the country's population depends upon agriculture for its livelihood. Therefore, if the country has to put itself on the path of a long term sustainable GDP growth rate in the region of 7%-8% or thereabouts, job creation in the field of agriculture and its allied activities should be given top priority. For example, India is among the top five producers of fruits and vegetables in the world but its share in the processed fruits and vegetables market is a paltry 1%. Therefore, if adequate investments are made to ensure the processing of the same, then it can lead to both wealth as well as job creation. Examples like this have to be backed by friendly policies.

In the end we would like to conclude with a comment from Mr. Reddy, the present Governor of Reserve Bank of India (RBI), who had this to say about the Indian agriculture sector:

“In regard to the importance of agriculture in a broader socio-economic sense, all the three basic objectives of economic development of the country, namely, output growth, price stability and poverty alleviation are best served by the growth of the agricultural sector. It may sound ironic that agriculture is one sector where there is convergence of all the three main objectives of economic policy in India but we seem to have relegated the sector to the background in the process of economic reforms…”

The present government has already given ample signs of being agri friendly, but what sort of measures they take will determine the fate of rural India and therefore India a whole. In our view, policy with regard to development of rural India should be pragmatic and must be executed well on the ground. Long term vision and not 'populism' is the answer.